How to Effectively Manage and Select Third Party Administration Vendors

1. How to Effectively Manage and Select Third Party Administration Vendors Hidden Costs Of Claim Management

2. Today’s Presentation • Understanding the full scope of Insurance Carrier/TPA Claims Administration Costs • TPA Selection • Key service fee issues that must be addressed and analyzed when renewing or changing TPA programs • Impact on the Total Cost of Risk • Q&A

3. Understanding scope of Insurance Carrier/TPA Claims Administration Costs • Claim Management Fees • Allocations to the Claim file

4. Claim Management Fees • Understanding your Pricing Models • LCF • Cost Plus • Life of Claim • Life of Contract

5. Claim File Allocations • Workers’ Compensation Medical Management Fees • Litigation Expenses • Outside Investigation Fees • Subrogation Fees • Claim Indexing Fees

6. Example of a Hidden Cost of Claim Management • Claim Fees based on Incurred or Paid Loss Conversion Factor • California Medical Management costs are charged to loss, therefore the costs are increased by the LCF (this may apply in other states)

7. Impact on Program CostsClaim Fees are charged as a Loss Conversion Factor Bill review savings Loss Conversion Factor of 9% $1,500 X 9% = $135 $750 X 30%=$225 Paid loss of $1500 You costs are now $135 +$225+$20.25 = $380.25 9% of paid

8. Example of a Hidden Cost of Claim file Allocations • Medical Bill Review charged as a % of savings • Fees Schedule adjustments considered savings • No dollar cap per bill

9. Impact on Program CostsClaim Fees are charged as a Loss Conversion Factor Fees Schedule Per bill Charge $1000$500 - $500 - $150 v/s $8.00 - $142 Medical Bill submitted Increased amount charged to the file Saving by Bill Review Bill Review Fees as 30 % of savings

10. Additional Examples of a Hidden Cost of Claim File Allocations • Litigation Costs • Litigation management plan • Panel of Defense attorneys • Outside Claim Investigation Costs • Include in the Claim Administration Costs • Charged on a Time and Expense Costs • Subrogation Costs • Claims Administrator charges as a % of savings • In addition Legal Counsel charged as a % of saving • Claim Indexing Costs • Initial Costs • Re-indexing Costs

11. TPA Selection Client focused approach

12. Components of a Client-Focused Approach • Carrier Approval • Match the TPA skills to your business model • Cost Containment services should reflect a Return on Investment • Cost transparency is critical (Managed Care and outside investigation Fees) • Data and Benchmarking tools are critical • Pricing Models should reflect your Long Range Risk Strategy

13. Keys to a Successful TPA Agreement • Review and understand your existing Claims Administration contracts • Continuation of claims services - if your contract is terminated how will your claims be handled and any additional costs • Require allocated expense pricing be part of your Claims Administration Contract • Request pricing disclosure of outsourced services • Understand the impact allocated expenses are having on the overall Cost of Risk • Require monthly reports on key allocated expenses • Consider renegotiating your existing contracts

14. Management Recommendations • Review and understand your existing Claims Administration contracts • Require allocated expense pricing be part of your Claims Administration Contract • Request pricing disclosure of outsourced services

15. Claim Management Recommendations • Average cost per claim • Claim Duration (number of days open) • Open to close Ratio • Litigation Costs • Medical Only to Indemnity conversion • Medical Bill Savings report • Subrogation

16. Impact on Total Cost of Risk • Actuarial Analysis • Loss Projections • X Mod • Accruals • Line of Credit/Collateral • Overall Program Cost